First, let's talk about panic. Because I've gotten more stressed messages on Kinder Morgan (KMI) after my recommendation Wednesday than on just about anything else in my career.
Folks, we're all grown-ups here. If it helps you, whatever you've got in KMI or are down in KMI is likely much less than what I've got and what I'm down.
Now, take a breath (or a vodka shot) or whatever else you do to chill out and have a look.
Next, realize that panic is not logical. For me, I pick a number that's stupid, take $2 off that and start buying. I know I'm not likely to "pick a bottom" -- I do know that I am going to be buying value.
Kinder Morgan is a $28 stock to me -- all day. So, when it goes into panic mode, I say, "OK, I'll buy at $21, again at $18 and -- if the world gets so stupid, again at $15."
Yes, I bought again this morning, if you're asking.
The price of Kinder stock is now well below even the most pessimistic lower targets of any analyst I know of. We know OPEC's surprise announcement of a quota raise was a supercharged knife in the heart of U.S. and Canadian producers, adding to the MLP panic. And it will bring about the capitulation in production they were hoping to see already in non-OPEC players.
Because U.S. production has managed to sidestep low prices for a year with efficiency gains and financial tricks, OPEC has decided to raise the stakes again.
And income stocks, like KMI (and the rest of the MLP space) goes into full-on stupid mode -- are we going to get stupid with it?
If you're long Kinder at $40 or $35, you've probably got no choice. But I'm not.
With 25 years experience trading oil in the pits, this is the kind of action that starts being fun for me. But I recognize you're probably not enjoying it as much as I am, with the shares losing 6% or 7% a day.
What can CEO Rich Kinder himself do? What should he do to try and stem the freefall?
The answer is nothing. KMI could force a full-scale capitulation of its shareholders by slashing the dividend. That would destroy the faithful income audience and send them running, dropping shares perhaps another 30%, but ending the panic with one final washout. But why should they? The cash flow doesn't warrant a divvy cut, only the share price seems to say it's coming. And why should it matter what the share price is compared to the dividend anyway? Whether it's $50 or $5, the commitment on the dividend shouldn't be subject to share price, only on cash flow -- which is more than sufficient for the next two years.
And it's not Kinder's way.
Remember, he's promised a 6% increase in the dividend for 2016, knowing full well the likely drop in volumes he's going to see.
Can Kinder reach out to a higher power for some underwriting help or a full-scale buyer? He could do that too, I suppose -- I'm not sure if Warren Buffett wants to be in the midstream game, but I'm guessing he'd be happy to underwrite anything for Kinder, provided he gets a solid double-digit return from it. And Exxon (XOM) would surely adore to buy the company at the 15% premium it's trading for now.
But Rich Kinder wouldn't consider doing either of these things. Not in a million years.
He's also not making a statement, because there's no statement to make. Unless Kinder Morgan is another Enron or Tyco, its common shares are vastly undervalued down here.
And it's not Enron or Tyco.
So I'm still buying.
